Nos. 17-2443, 17-2445 IN THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT _________________________________________________________________________ VILLAGE OF OLD MILL CREEK, et al., ) Appeal from the United Plaintiffs-Appellants, ) States District Court for v. ) the Northern District of ANTHONY STAR, in his official capacity as ) Illinois, Eastern Division. Director of the Illinois Power Agency ) No. 17-cv-1163 Defendant-Appellee, ) and ) The Honorable EXELON GENERATION COMPANY, LLC, ) MANISH S. SHAH, Intervening Defendant-Appellee. ) Judge Presiding ________________________________________________ ) ______________________

ELECTRIC POWER SUPPLY ASSOCIATION, et al., ) Appeal from the United Plaintiffs-Appellants, ) States District Court for v. ) the Northern District of ANTHONY STAR, in his official capacity as ) Illinois, Eastern Division. Director of The Illinois Power Agency, et al., ) No. 17-cv-1164 Defendants-Appellees, ) and ) The Honorable EXELON GENERATION COMPANY, LLC, ) MANISH S. SHAH, Intervening Defendant-Appellee. ) Judge Presiding _________________________________________________________________________

AMICI CURIAE BRIEF OF CALIFORNIA, CONNECTICUT, MASSACHUSETTS, NEW YORK, OREGON, VERMONT, AND WASHINGTON IN SUPPORT OF DEFENDANTS-APPELLEES

AND AFFIRMANCE

GEORGE JEPSEN Attorney General of Connecticut CLARE E. KINDALL, AAG Department Head – Energy Ten Franklin Square New Britain, CT 06051 Tel. (860) 827-2683 Clare.Kindall@ct.gov Attorneys for the State of Connecticut by and through George Jepsen, Attorney General

XAVIER BECERRA Attorney General of California KATHLEEN A. KENEALY Chief Assistant Attorney General ROBERT W. BYRNE SALLY MAGNANI Senior Assistant Attorneys General GAVIN G. MCCABE Supervising Deputy Attorney General M. ELAINE MECKENSTOCK Deputy Attorney General 1515 Clay Street, 20th Floor Oakland, CA 94612-1492 Tel. (510) 879-0299 Elaine.Meckenstock@doj.ca.gov Attorneys for the State of California by and through Xavier Becerra, Attorney General, and the California Air Resources Board

Counsel for Amici Curiae (additional counsel on signature page)

TABLE OF CONTENTS Page

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TABLE OF AUTHORITIES …………………………………………......iii INTEREST OF THE AMICI CURIAE ......................................................... 1 ARGUMENT ................................................................................................. 2 I. The District Court Correctly Held that the Illinois ZEC Statute Is Not

Preempted by the Federal Power Act. ................................................. 3 A. The Federal Power Act Embraces the Concept of Cooperative

Federalism, Preserving Substantial Authority for the States. ... 6 B. The Illinois ZEC Statute is Consistent with Cooperative

Federalism. ................................................................................ 8 C. The Illinois ZEC Statute Is Not the Kind of “Tethered”

Regulatory Scheme Found Preempted under Hughes. ............ 10 D. A Claim of Incidental Impact on Supply and Demand Does

Not Trigger Conflict Preemption. ........................................... 13 II. The District Court Correctly Found that Illinois’ ZEC Program Does

Not Discriminate in Violation of the Dormant Commerce Clause. .. 14 A. Plaintiffs’ Discrimination Claims Fail Because ZEC Qualifiers

and Other Generators Are Not Substantially Similar, and Illinois May Constitutionally Distinguish Between Them. .... 15

B. Plaintiffs Have Not Stated, and Cannot State, a Claim of Discrimination, Even Assuming All Generators Are Substantially Similar. .............................................................. 19 1. Plaintiffs Have Not Stated, and Cannot State, a Claim of

Facial Discrimination. ................................................... 19 2. Plaintiffs Have Not Stated, and Cannot State, a Claim of

Purposeful Discrimination. ........................................... 20 3. Plaintiffs Have Not Stated, and Cannot State, a Claim of

Discriminatory Effects. ................................................. 22 C. Plaintiffs’ Discrimination Claims Are Premised on an

Overbroad Reading of the Dormant Commerce Clause that Contravenes Controlling Precedent. ........................................ 25

TABLE OF CONTENTS (continued)

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III. Plaintiffs Also Fail to State a Claim Under the Pike Balancing Test. .................................................................................................... 29

CONCLUSION ............................................................................................ 31

TABLE OF AUTHORITIES

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CASES Allco Finance Ltd v. Klee

861 F.3d 82 (2d Cir. 2017) ............................................................... passim Alliance of Auto. Mfrs., Inc. v. Currey

610 Fed.Appx. 10 (2d Cir. 2015)............................................................. 30 Alliance of Auto. Mfrs. v. Gwadosky

430 F.3d 30 (1st Cir. 2005) ................................................................ 20, 22 Alliance for Clean Coal v. Miller

44 F.3d 591 (7th Cir. 1995) ..................................................................... 21 Allstate Ins. Co. v. Abbott

495 F.3d 151 (5th Cir. 2007) ................................................. 20, 26, 28, 29 Bacchus Imports, Ltd. v. Dias

468 U.S. 263 (1984)........................................................................... 21, 24 Black Star Farms LLC v. Oliver

600 F.3d 1225 (9th Cir. 2010) ................................................................. 22 Brown v. Hovatter

561 F.3d 357 (4th Cir. 2009) ................................................................... 26 C & A Carbone, Inc. v. Town of Clarkstown, N.Y.

511 U.S. 383 (1994)........................................................................... 26, 28 Camps Newfound/Owatonna, Inc. v. Town of Harrison, Me.

520 U.S. 564 (1997)................................................................................. 19 Chemical Waste Mgmt., Inc. v. Hunt

504 U.S. 334 (1992)................................................................................. 24 Cherry Hill Vineyard, LLC v. Baldacci

505 F.3d 28 (1st Cir. 2007) ...................................................................... 22 Chinatown Neighborhood Ass’n v. Harris

794 F.3d 1136 (9th Cir. 2015) ................................................................. 30 Coalition for Competitive Electricity v. Zibelman

2017 WL 3172866 (S.D.N.Y., July 25, 2017) ........................... 6, 9, 12, 14

TABLE OF AUTHORITIES (continued)

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Dep’t of Revenue of Ky. v. Davis 553 U.S. 328 (2008)..................................................................... 17, 22, 29

Exxon Corp. v. Maryland 437 U.S. 117 (1978)........................................................................... 25, 28

Fednav, Ltd. v. Chester 547 F.3d 607 (6th Cir. 2008) ................................................................... 30

FERC v. Electric Power Supply Ass’n 136 S.Ct. 760 (2016) ......................................................................... passim

Ford Motor Co. v. Texas Dep’t of Transp. 264 F.3d 493 (5th Cir. 2001) ................................................................... 26

Fort Gratiot Sanitary Landfill, Inc. v. Michigan Dept. of Natural Resources 504 U.S. 353 (1992)................................................................................. 29

Frank Bros., Inc. v. Wisconsin Dep’t of Transportation 409 F.3d 880 (7th Cir. 2005) ......................................................................3

General Motors Corp. v. Tracy 519 U.S. 278 (1997)............................................................... 15, 16, 17, 18

Goldfarb v. Supreme Court of Virginia 766 F.2d 859 (4th Cir. 1985) ................................................................... 31

Government Suppliers Consolidating Services, Inc. v. Bayh 975 F.2d 1267 (7th Cir. 1992) ........................................................... 23, 24

Grand Council of the Crees (of Quebec) v. FERC 198 F.3d 950 (D.C. Cir. 2000) ................................................................. 10

Hughes v. Talen Energy Marketing, LLC. 136 S.Ct. 1288 (2016) ....................................................................... passim

Hunt v. Washington State Apple Advertising Commission 432 U.S. 333 (1977)........................................................................... 23, 24

Int’l Franchise Ass’n v. Seattle 803 F.3d 389 (9th Cir. 2015) ............................................................. 22, 25

TABLE OF AUTHORITIES (continued)

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McBurney v. Young 569 U.S. 221 (2013)................................................................................. 17

Minnesota v. Clover Leaf Creamery Co. 449 U.S. 456 (1981).......................................................................... passim

Nat’l Ass’n of Optometrists & Opticians LensCrafters, Inc. v. Brown 567 F.3d 521 (9th Cir. 2009) ................................................................... 17

Nat’l Ass’n of Optometrists & Opticians v. Harris 682 F.3d 1144 (9th Cir. 2012) ................................................................. 30

Nat’l Paint & Coatings Ass’n v. City of Chicago 45 F.3d 1124 (7th Cir. 1995) ................................................................... 20

New York State Dep’t of Soc. Servs. v. Dublino 413 U.S. 405, 421 (1973) ...........................................................................3

Northwest Central Pipeline Corp. v. State Corp. Comm’n of Kansas 489 U.S. 493 (1989)....................................................................................6

Oneok, Inc. v. Learjet, Inc. 135 S.Ct. 1591 (2015) ....................................................................... passim

Oregon Waste System, Inc. v. Dept. of Envtl. Quality of Or. 511 U.S. 93 (1994)................................................................................... 19

Pacific Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm’n 461 U.S. 190 (1983)....................................................................................6

Pacific Northwest Venison Producers v. Smitch 20 F.3d 1008 (9th Cir. 1994) ................................................................... 30

Park Pet Shop, Inc. v. City of Chicago 872 F.3d 495 (7th Cir. 2017) ................................................................... 30

Patriotic Veterans, Inc. v. Indiana 736 F.3d 1041 (7th Cir. 2013) ....................................................................4

TABLE OF AUTHORITIES (continued)

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PPL EnergyPlus, LLC v. Solomon 766 F.3d 241 (3d Cir. 2014) .................................................................... 14

PTI, Inc. v Philip Morris Inc. 100 F. Supp. 2d 1179 (C.D. Ca. 2000) .................................................... 30

Rocky Mountain Farmers Union v. Corey 730 F.3d 1070 (9th Cir. 2013) ........................................................... 28, 29

United Haulers Assn., Inc. v. Oneida-Herkimer Solid Waste Management Authority 550 U.S. 330 (2007)................................................................................. 30

Valley Bank of Nev. v. Plus Sys., Inc. 914 F.2d 1186 (9th Cir. 1990) ........................................................... 21, 26

Wheelabrator Lisbon, Inc. v. Conn. Dep’t of Public Utility Control 531 F.3d 183 (2d Cir. 2008) ................................................................ 9, 18

Wyoming v. Oklahoma 502 U.S. 437 (1992)........................................................................... 20, 28

ADMINISTRATIVE DECISIONS Southern California Edison Co.

71 FERC ¶61,269 (1995) ......................................................................... 12 WSPP Inc.

139 FERC ¶61,061 (2012) ....................................................................... 10 STATUTES The Federal Power Act, 16 U.S.C. § 791a, et seq. ................................ passim 16 U.S.C. § 824(b)(1) ................................................................................. 4, 6 20 ILCS 3855/1-10 ..........................................................................................9 20 ILCS 3855/1-75(d-5) ......................................................... 9, 10. 13, 25, 28 Ill. Public Act 99-0906 § 1.5(4) .................................................................... 21 Ill. Public Act 99-0906 § 2............................................................................ 18

TABLE OF AUTHORITIES (continued)

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RULES Fed R. App. P. 29(a) ........................................................................................1 OTHER SOURCES Potential Nuclear Power Plant Closings In Illinois, Response to

Illinois General Assembly Concerning House Resolution 1146, Appendix C Available at www.icc.illinois.gov/downloads/public/HR1146%20Report.pdf, last visited October 29, 2017 ......................................................................1

U.S. Energy Information Administration, Annual Energy Outlook 2016 available at https://www.eia.gov/outlooks/archive/aeo16/pdf/0383(2016).pdf, last visited October 20, 2017 ................................................................... 18

U.S. Energy Information Administration, “Nuclear plants account for more than half of electricity generation in Illinois,” available at https://www.eia.gov/todayinenergy/detail.php?id=31092, last visited October 5, 2017 ............................................................................ 24

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INTEREST OF THE AMICI CURIAE

The undersigned States and state agencies (collectively, the “Amici States”)

file this brief, pursuant to Fed. R. App. P. 29(a), in support of the Illinois Defendants-

Appellees. The Amici States have a strong interest in defending state authority to

support electricity generators that provide air quality or other environmental benefits

to States and their citizens.

Illinois created the Zero Emission Credit (“ZEC”) program at issue in this case

to allow nuclear facilities that historically have provided Illinois with air pollution

benefits along with electricity to remain in operation. The ZEC program was created

after a report, requested by Illinois’ Legislature, indicated that keeping these nuclear

facilities operational would prevent thousands of tons of sulfur dioxide and nitrogen

oxide emissions as well as millions of tons of carbon dioxide emissions.1

Like Illinois, the Amici States have adopted programs, including some that

promote specific forms of electricity generation (such as solar, wind, and

hydroelectric), to protect our citizens from hazards associated with poor air quality

and climate change, as well as to ensure that available generation is sufficient. While

each of these programs is unique, reflecting the particular needs and circumstances

of diverse States, these programs generally involve policy determinations of the

1 See Potential Nuclear Power Plant Closings In Illinois, Response to Illinois General Assembly Concerning House Resolution 1146, Appendix C at p. 9, available at www.icc.illinois.gov/downloads/public/HR1146%20Report.pdf, last visited October 29, 2017.

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kinds Illinois made here—that certain forms of electric generation best serve the

State’s goals. Regardless of their views regarding nuclear power, the Amici States

have a significant interest in ensuring the proper application of Federal Power Act

preemption and dormant Commerce Clause principles to state programs—to

preserve the long-standing authority and discretion States have traditionally

exercised to protect the health of our citizens and the environment and to ensure

sufficiency of electric generation.

ARGUMENT

The Illinois ZEC program will provide support to qualifying generators in order

to ensure that those generators continue to provide important air quality benefits to

Illinois and its residents. The Federal Power Act (“FPA”), 16 U.S.C. § 791a et seq.,

does not preempt the Illinois ZEC program because the program fits squarely within

the confines of authority left to the States in the cooperative federalism scheme

intrinsic to the Act. Further, Illinois’ ZEC program does not violate the dormant

Commerce Clause because it distinguishes between generators based on their ability

to provide air quality benefits and their need for financial assistance to do so. This

is neither economic protectionism nor an undue burden on interstate commerce. The

district court decision correctly dismissed the complaints, and that decision should

be affirmed.

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I. THE DISTRICT COURT CORRECTLY HELD THAT THE ILLINOIS ZEC STATUTE IS NOT PREEMPTED BY THE FEDERAL POWER ACT.

Plaintiffs’ preemption arguments ignore the cooperative federalism scheme

that underlies the FPA, misapply recent Supreme Court precedent, and misconstrue

Illinois’ statute.

There is a strong presumption against finding that a federal statutory scheme

preempts the States’ powers, particularly when the statutory scheme provides for

state and federal roles. Where “coordinate state and federal efforts exist within a

complementary administrative framework, and in the pursuit of common purposes,

the case for federal pre-emption becomes a less persuasive one.” Hughes v. Talen

Energy Marketing, LLC, 136 S.Ct. 1288, 1300 (2016) (Sotomayor, J., concurring),

citing New York State Dep't of Soc. Servs. v. Dublino, 413 U.S. 405, 421 (1973).

The “Federal Power Act, like all collaborative federalism statutes, envisions a

federal-state relationship marked by interdependence. Pre-emption inquiries related

to such collaborative programs are particularly delicate.” Id. The Seventh Circuit

has applied this presumption against preemption in cases involving other federal

statutes. See, e.g., Frank Bros., Inc. v. Wisconsin Dep’t of Transportation, 409 F.3d

880, 888 (7th Cir. 2005) (state prevailing wage law not preempted by Davis Bacon

Act, where Congress understood state involvement in setting prevailing wages and

sought state cooperation in facilitating the enforcement of the Act). The

“presumption against preemption of state laws dictates that a law must do ‘major

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damage’ to clear and substantial federal interests before the Supremacy Clause will

demand that state law surrenders to federal regulation.” Patriotic Veterans, Inc. v.

Indiana, 736 F.3d 1041, 1050 (7th Cir. 2013) (state law precluding automated

telephone calls was not preempted, even though it barred placement of interstate

calls).

When Congress enacted the FPA, it divided roles and powers between federal

and state governments. Section 201 of the Act vests the Federal Energy Regulatory

Commission (FERC) with authority over the “transmission of electric energy in

interstate commerce” and the “sale of electric energy at wholesale in interstate

commerce.” Allco Finance Ltd v. Klee, 861 F.3d 82, 87 (2d Cir. 2017). The FPA

also maintains the traditional zones of state jurisdiction, including generation of

electricity, retail sales of electricity, and intrastate wholesale sales. FERC v. Electric

Power Supply Ass’n, 136 S.Ct. 760, 767-768 (2016) (“EPSA”); 16 U.S.C. §

824(b)(1).

The U.S. Supreme Court has issued three decisions in the past two years

clarifying the contours of this federal-state jurisdiction: Oneok, Inc. v. Learjet, Inc.,

135 S.Ct. 1591 (2015); EPSA, 136 S.Ct. 760; and Hughes, 136 S.Ct. 1288. In all of

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these cases, the Court affirmed the cooperative federalism scheme in which the

States and the federal government have different but interlocking roles.2

As the district court below correctly held, the Illinois ZEC program falls well

within the States’ jurisdiction under the FPA and is not subject to field preemption.

Memorandum Opinion and Order (“Decision”), ECF 107, at 18-35. Further,

Plaintiffs do not allege they are unable to comply with federal law and the ZEC

program, and the Illinois ZEC program does not conflict with the purposes of the

FPA. Accordingly, the district court correctly held that the ZEC program is not

barred by conflict preemption. Decision at 33-35; see also Oneok, 135 S.Ct. at 1595

(describing standard for conflict preemption).

Simply put, Illinois’ establishment of tradable credits for the environmental

attributes associated with certain electricity generators neither “directly

intervene[s]” in the wholesale electricity market, Hughes, 136 S.Ct. at 1297, nor

“stand[s] as an obstacle” to the purposes of the FPA, Oneok, 135 S.Ct. at 1595.

Illinois’ ZEC program, therefore, is not preempted.

2 Oneok involved the Natural Gas Act, but “the relevant provisions of the [Natural Gas Act and FPA] are analogous. This Court has routinely relied on NGA cases in determining the scope of the FPA, and vice versa.” Hughes, 136 S.Ct. at 1298, n.10.

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A. The Federal Power Act Embraces the Concept of Cooperative Federalism, Preserving Substantial Authority for the States.

When Congress established “the system of dual state and federal regulation”

under the FPA, it did so “with meticulous regard for the continued exercise of state

power, not to handicap or dilute it in any way.” Northwest Central Pipeline Corp.

v. State Corp. Comm’n of Kansas, 489 U.S. 493, 510–11 (1989); Oneok, 135 S.Ct.

at 1599. The Act took “nothing from the State [regulatory] commissions”; they

retained all the authority they had prior to the FPA’s enactment. Northwest Central,

489 U.S. at 511; see also Oneok, 135 S.Ct. at 1599. Notably, the power “to allocate

and conserve scarce natural resources” remained with the States. Northwest Central,

489 U.S. at 511. So, too, did the authority to address the need for “new power

facilities, their economic feasibility, and [retail] rates and services.” Pacific Gas &

Elec. Co. v. State Energy Res. Conservation & Dev. Comm’n, 461 U.S. 190, 205

(1983); see also 16 U.S.C. § 824(b)(1) (FERC “shall not have jurisdiction … over

facilities used for the generation of electric energy”).

The Federal Power Act made “federal and state powers complementary and

comprehensive so that there will be no gaps for private interest to subvert the public

welfare.” EPSA, 136 S.Ct. at 780 (internal quotation marks and brackets omitted).

Indeed, the “FPA is a paragon of cooperative federalism.” Coalition for Competitive

Electricity v. Zibelman, 2017 WL 3172866, *7 (S.D.N.Y., July 25, 2017). The U.S.

Supreme Court’s recent decisions in Oneok, EPSA, and Hughes acknowledge this

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interdependency of state and federal roles in the increasingly complex world of

electric energy regulation.

For example, in Oneok, the Court distinguished between “measures aimed

directly at interstate purchasers and wholesales for resale and those aimed at subjects

left to the States to regulate,” holding, consistent with the FPA’s system of dual state

and federal regulation, that only the former could be preempted. Oneok, 135 S.Ct.

at 1599-1600 (emphasis in original; internal citations omitted). The Oneok Court

expressly rejected the dissenting position that a state regulation is preempted merely

because it “affected” FERC’s wholesale rates, recognizing that such a rule would

nullify the express state authority under the Act. Id. at 1600-1601.

In EPSA, the Court applied the Oneok analysis to the FPA, expanding upon the

dual jurisdictional nature of the statutory scheme. The EPSA plaintiffs viewed

FERC’s incorporation of demand response into the wholesale energy markets as

impinging upon the authority that the FPA solely reserved to the States. EPSA, 136

S. Ct at 767. Emphasizing that the “wholesale and retail markets in electricity are

inextricably linked,” the EPSA Court adopted a “common-sense construction” of the

FPA, limiting FERC’s “affecting” jurisdiction to “rules or practices that directly

affect the wholesale rate.” Id. at 774 (emphasis in original; internal citations,

brackets, and quotes omitted). Because “every aspect” of the challenged federal

8

regulation occurred “exclusively on the wholesale market,” the Court held that the

federal regulation was within FERC’s authority. Id. at 776.

In sum, because the wholesale and retail electricity markets are inextricably

linked, effects of FERC rules on retail markets and of state rules on wholesale

markets abound and are lawful. The Court has recognized the interdependency of

the dual jurisdictions and, accordingly, has limited preemption under the FPA to

instances of States directly interfering in a FERC-regulated market. As discussed

below, Illinois’ statute does not create such interference.

B. The Illinois ZEC Statute is Consistent with Cooperative Federalism.

Citing the dissent in EPSA, plaintiffs argue that the ZEC statute “effectively”

sets the wholesale rates, and thus the district court misapplied EPSA. Brief of

Plaintiffs-Appellants Electric Power Supply Association (“AOB”) at 50. Plaintiffs

seek an interpretation of Hughes and the FPA under which the payment of any

monies “in exchange for power” triggers preemption. AOB at 50. That overstates

the scope of FPA preemption, and, in any event, the Illinois statute neither sets a

wholesale rate nor purchases power.

Rather, the Illinois ZEC statute creates a new commodity—a ZEC—that

compensates generating facilities for environmental attributes when qualifying

energy is produced. 20 ILCS 3855/1-75(d-5); see also Decision at 7. Illinois defines

a ZEC as a “tradeable credit that represents the environmental attributes of one

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megawatt hour of energy produced from a zero emission facility.” 20 ILCS 3855/1-

10. ZECs are “inventions” of state law whereby “energy attributes are ‘unbundled’

from the energy itself and sold separately.” Zibelman, at *12; see also Allco, 861

F.3d at 93; Wheelabrator Lisbon, Inc. v. Conn. Dep’t of Public Utility Control, 531

F.3d 183, 186 (2d Cir. 2008). ZEC programs compensate eligible generators for the

environmental attributes of electricity production regardless of how the resulting

energy is sold. See Zibelman, at *10-*11; Decision at 33.

ZEC payments are not tied to or bundled with the sale of capacity or energy in

the federal wholesale markets. Decision at 32-33; see also Zibelman, at *11-*12.

Illinois ZECs are sold in a separate, state-created market, and the Illinois ZEC price

is established by the social cost of carbon and may be reduced by a statutory price

adjustment in order to protect retail consumers. 20 ILCS 3855/1-75(d-5)(1)(B).

Because Illinois’ program does not require generators to participate in the wholesale

markets, the generators awarded ZECs may sell the underlying energy at negotiated

rates to bilateral purchasers, in the federal wholesale markets, or directly to industrial

or governmental end-users for their own consumption. In other words, Illinois ZEC

transactions occur untethered from the sale of energy or capacity in the federal

wholesale market.

Further, when FERC undertakes its rate-setting responsibilities under the

FPA—to ensure wholesale rates are “just and reasonable” and not “unduly

10

discriminatory and preferential,” it does not generally consider environmental

attributes. Indeed, FERC has acknowledged that sales of environmental attributes

on an “unbundled” basis, separate from the associated energy sales, do not impinge

on FERC’s jurisdiction. WSPP Inc., 139 FERC ¶61,061, P18 (2012); see also Grand

Council of the Crees (of Quebec) v. FERC, 198 F.3d 950, 956-957 (D.C. Cir. 2000)

(noting other instances where FERC has declined to consider environmental

attributes). But being able to recognize and reward environmental benefits of

different types of generation—including in the form of tradable instruments that

embody environmental attributes—is important for States as they seek to meet

environmental, health, and safety objectives. The Illinois ZEC statute regulates

unbundled attributes that fall squarely within the state’s jurisdiction. It does not

regulate the sale of energy in the wholesale market and is not preempted.

C. The Illinois ZEC Statute Is Not the Kind of “Tethered” Regulatory Scheme Found Preempted under Hughes.

The plaintiffs heavily rely upon Hughes, contending that the Illinois ZEC

statute mirrors the state program that the Hughes Court held was preempted. AOB

at 41-49. Plaintiffs misapply Hughes and ask this court to improperly expand the

narrow confines of the Hughes holding.

In Hughes, the Court held that the FPA preempted Maryland’s program to

encourage new electric generation plants where the regulatory program required the

generators to sell the energy and capacity into the federal wholesale market, and then

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ensured the generators would be paid the difference between the wholesale market

rate and a contract rate. Recognizing the danger of an overly broad reading of the

case, the Hughes Court explained that States remain able to encourage specific types

of electric generation facilities. Expressly describing its holding as “limited,” the

Court wrote:

We reject Maryland’s program only because it disregards an interstate wholesale rate required by FERC …. Nothing in this opinion should be read to foreclose Maryland and other States from encouraging production of new or clean generation through measures untethered to a generator’s wholesale market participation. So long as a State does not condition payment of funds on capacity clearing the auction, the State’s program would not suffer from the fatal defect that renders Maryland’s program unacceptable.

Hughes, 136 S.Ct. at 1299 (emphasis added).

The Court held the Maryland program was preempted by the FPA because it

replaced a FERC wholesale rate and expressly “tethered” compensation to the

generator’s wholesale sales into the federal wholesale electricity market. The Court

defined “tethered” as “condition[ing] payment of funds on capacity clearing the

auction.” Id.

In its recent Allco decision, the Second Circuit relied upon Hughes in rejecting

a federal preemption challenge to a state energy program that was not tethered to the

wholesale energy market. The Allco plaintiff challenged Connecticut statutes that

authorized the State to solicit proposals for renewable energy generation, to select

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winning bids, and then to direct Connecticut utilities to enter into wholesale energy

contracts with the winning bidders. Allco, 861 F.3d at 86. Connecticut transferred

“ownership of electricity from one party to another by contract, independent of the

[wholesale] auction.” Allco, 861 F.3d at 99. The Allco court characterized the

Hughes holding as a “bright line,” prohibiting a form of contracting where bids were

directly “tethered to a generator’s wholesale market participation,” as when payment

of funds is conditioned upon clearing the capacity market. Allco, 861 F.3d at 102.

Applying the same legal analysis here, the Illinois statute does not cross the

line drawn in Hughes. It does not require participation in the wholesale market in

order to receive ZECs. 20 ILCS 3855/1-75(d-5); Decision at 30; see also Zibelman,

at *10. The Illinois statute could not “disregard” a FERC wholesale rate because it

does not require a FERC wholesale sale at all, let alone as a condition of participation

in the ZEC program. Cf., Hughes, 136 S.Ct. at 1299. ZECs are, quite simply, the

very type of action Hughes acknowledged States could engage in—“measures

‘untethered to a generator’s wholesale market participation’” that “encourage

production of new or clean generation.” Hughes, 136 S.Ct. at 1299. Indeed,

plaintiffs describe the ZEC program as a subsidy, and FERC has long noted that

States may encourage renewables and other types of generating resources through

direct incentives. Southern California Edison Co., 71 FERC ¶61,269 at 62,080

(1995).

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Contrary to plaintiffs’ arguments, the Illinois statutory “price adjustment”

provision does not create a “tether” to the wholesale market simply because ZEC

prices may decline if a composite index of wholesale prices rises. Rather, the price

adjustment merely provides a check on ZEC prices, ensuring that ratepayers do not

pay higher-than-necessary costs. Looking up aggregated prices on an index, as the

Illinois statute requires, does not displace the wholesale rate for any transaction, as

was the case in Hughes. States may regulate “within the domain Congress assigned

to them,” including retail rates and environmental protection, “even when their laws

incidentally affect areas within FERC’s domain.” Hughes, 136 S.Ct. at 1298.

Illinois is doing so here, and its program is not preempted by the FPA.

D. A Claim of Incidental Impact on Supply and Demand Does Not Trigger Conflict Preemption.

Citing Oneok, plaintiffs contend that the Illinois ZEC statute is subject to

conflict preemption. AOB at 54-55.3 Plaintiffs argue that the statute is preempted

because the nuclear generators will not retire if they receive the subsidy, and thus

the amount of supply in the wholesale market is “artificially inflated,” resulting in

lower wholesale prices. AOB at 56-58. Plaintiffs’ “indirect impact” preemption

theory was expressly rejected in Oneok and EPSA.

3 Oneok was decided on field preemption, not conflict preemption. Oneok, 135 S.Ct. at 1595.

14

An incidental impact on prices cannot trigger federal preemption, especially

where, as here, the underlying federal statute is structured for dual jurisdiction

between the federal and state governments. See Oneok, 135 S.Ct. at 1600-1601;

EPSA, 136 S.Ct. at 774. “The law of supply-and-demand is not the law of

preemption.” PPL EnergyPlus, LLC v. Solomon, 766 F.3d 241, 255 (3d Cir. 2014).

The Allco court rejected arguments that Connecticut infringed upon FERC’s

regulatory authority merely because the supply of electricity available to

Connecticut utilities was increased, placing a downward pressure on wholesale

prices. Allco, 861 F.3d at 100. Relying upon Hughes, the Allco court held that the

incidental effect on wholesale prices did not amount to regulation of the interstate

wholesale electricity market. Id. at 101. Under the same rationale, the district court

below correctly rejected plaintiffs’ conflict preemption challenge. Decision at 22-

24; see also Zibelman, at *16-*17. This Court should affirm.

II. THE DISTRICT COURT CORRECTLY FOUND THAT ILLINOIS’ ZEC PROGRAM DOES NOT DISCRIMINATE IN VIOLATION OF THE DORMANT COMMERCE CLAUSE.

Plaintiffs’ Commerce Clause claims fare no better. Plaintiffs attempt to assert

discrimination in two distinct markets, though they conflate these claims in their

arguments. Plaintiffs allege that Illinois’ distribution of ZECs will be “directly

discriminatory” (Compl. at ¶ 90), based on allegations that only “certain in-state

15

wholesale producers” will receive ZECs to sell in the ZEC market (id. at ¶ 13).4

Plaintiffs also allege that this distribution will have negative impacts on the

wholesale energy markets, and that those impacts somehow constitute

discrimination. Both claims fail.

Plaintiffs’ arguments boil down to a claim that Illinois may not support the

continued operation of generators Illinois has determined can provide the State with

significant air quality benefits because it may turn out that the qualifying generators

who need this support are located in Illinois. Courts have consistently rejected

similar, overly-expansive views of the dormant Commerce Clause, and for good

reason. This Court should do the same and affirm the district court’s dismissal.

A. Plaintiffs’ Discrimination Claims Fail Because ZEC Qualifiers and Other Generators Are Not Substantially Similar, and Illinois May Constitutionally Distinguish Between Them.

Discrimination analysis under the dormant Commerce Clause begins with

identification of the relevant market and the competitors in that market. This is

because “any notion of discrimination assumes a comparison of substantially similar

entities,” and “substantially similar” generally refers to the competitors “in a single

market.” General Motors Corp. v. Tracy, 519 U.S. 278, 298, 300 (1997).

4 Citations to “Compl.” are to the complaint filed by Electric Power Supply Association, et al., ECF Doc. 1, Case No. 1:17-cv-01164.

16

Yet, as noted above, plaintiffs do not identify a “single market.” Rather, they

conflate claims of discrimination in the ZEC market—discrimination regarding who

gets ZECs to sell—with claims of discrimination in the wholesale energy markets.

Where, as here, there are potentially multiple markets at issue, courts must decide

which market should be “accord[ed] controlling significance.” Id. at 303. Deciding

that question requires courts to weigh policy considerations, such as the State’s role

in protecting its people and any relevant positions adopted by Congress. See id.

For example, in Tracy, the Supreme Court had to decide whether utilities

selling natural gas “bundled with services and protections” designed to ensure

reliability and availability for residential consumers were substantially similar to

independent marketers selling natural gas “unbundled” from such services and

protections. Id. at 297. The utilities and independent marketers competed in the

unbundled natural gas market, in which gas was sold as a standalone product. Id. at

303. They did not compete, however, in the market for natural gas bundled with

reliability and availability guarantees. Id. In deciding that the bundled gas market

was controlling, the Court “proceed[ed] cautiously” to avoid jeopardizing the

important protections the bundled product provided to residential consumers—

protections Congress had long recognized as desirable. Id. at 304.

17

For similar reasons, the ZEC market is controlling in this case. 5 Just as

“Congress [had found] the benefits of … bundled [natural gas]” to be “well within

the realm of what the States may reasonably promote and preserve,” Congress has

also recognized that a State may reasonably promote or preserve certain types of

electricity generation to serve its consumers. See id. at 305; see also, supra at 6

(discussing congressional preservation of traditional state decision-making

regarding generation). Illinois’ ZEC program does precisely that: it preserves air-

pollution-reducing generation in order to protect “the health and welfare of the

State’s citizens.” Ill. P.A. 099-0906, § 2. The ZEC market is controlling in this case,

and, in that market, generators that advance Illinois’ objectives are not “substantially

similar” to those that do not. See Tracy, 519 U.S. at 307 (weighing “health and

safety considerations” to decide these “threshold question[s]”); see also Allco, 861

F.3d at 103-108; Nat’l Ass’n of Optometrists & Opticians LensCrafters, Inc. v.

Brown, 567 F.3d 521, 527 (9th Cir. 2009).

Indeed, the caution exercised by the Court in Tracy is equally appropriate here.

See Tracy, 519 U.S. at 304; see also Dep’t of Revenue of Ky. v. Davis, 553 U.S. 328,

5 Alternatively, this Court could conclude there is no discrimination here because the ZEC market is not a “natural functioning” “interstate market” of the kind the dormant Commerce Clause protects. See McBurney v. Young, 569 U.S. 221, 235 (2013). Indeed, ZECs are not goods produced by private parties in response to market demand. These instruments exist solely because the State chose to create them. Particularly where the qualifications for the instruments advance legitimate state interests, the distribution of state-created instruments is not the proper subject of a dormant Commerce Clause claim. See McBurney, 569 U.S. at 236 (rejecting discrimination claim involving state-created “product”).

18

342-343 (2008). Many States have programs that rely on tradable compliance

instruments that, like ZECs, are issued by the State for the sole purpose of

embodying criteria that advance the States’ particular objectives. For example,

many States issue Renewable Energy Credits or RECs as a means by which utilities

may demonstrate compliance with renewable energy quotas or other requirements.

See, e.g., Wheelabrator, 531 F.3d at 186. Each State decides for itself what attributes

its particular instruments embody because each State has its own needs and policy

objectives. For example, some States recognize landfill gas generation as renewable,

and will issue RECs for such generation (assuming other applicable requirements

are met), while other States do not and will not. See U.S. Energy Information

Administration, Annual Energy Outlook 2016 at LR-12.6 Like the state decisions

in Tracy, the decisions concerning qualifications for instruments like RECs reflect

each sovereign State’s policy judgment made by weighing complex sets of potential

risks and benefits.

The Supreme Court has “consistently recognized” that the Commerce Clause

was “never intended to cut the States off from legislating on all subjects relating to

the health, life, and safety of their citizens.” Tracy, 519 U.S. at 306 (internal

quotation omitted). The Clause should not, therefore, require Illinois to treat ZEC-

6 Available at https://www.eia.gov/outlooks/archive/aeo16/pdf/0383(2016).pdf, last visited October 20, 2017.

19

qualifying generators—those that provide the benefits Illinois seeks—as though they

are the same as non-qualifying generators that do not provide those benefits. The

ZEC qualifications serve precisely the kind of values the Supreme Court has

recognized that States may use to distinguish among different classes of

businesses—even when those businesses might compete in one or more other

markets. Differential treatment of classes that are not substantially similar is simply

not discrimination.

B. Plaintiffs Have Not Stated, and Cannot State, a Claim of Discrimination, Even Assuming All Generators Are Substantially Similar.

Plaintiffs’ discrimination claims would still fail, even assuming, arguendo, that

all generators are substantially similar because of their competition in the wholesale

energy markets.

1. Plaintiffs Have Not Stated, and Cannot State, a Claim of Facial Discrimination.

Plaintiffs concede that the Illinois statute does not “expressly state that the ZEC

subsidies will be awarded only to the in-state Exelon plants.” AOB at 65. Yet,

Plaintiffs point to no case in which facial discrimination has been found absent such

express statements. Plaintiffs’ facial discrimination claim fails as a matter of law.

See, e.g., Camps Newfound/Owatonna, Inc. v. Town of Harrison, ME, 520 U.S. 564,

575-76 (1997); Oregon Waste System, Inc. v. Dept. of Envtl. Quality of Or., 511 U.S.

20

93, 99 (1994); Wyoming v. Oklahoma, 502 U.S. 437, 455 (1992); Nat’l Paint &

Coatings Ass’n v. City of Chicago, 45 F.3d 1124, 1131 (7th Cir. 1995).

2. Plaintiffs Have Not Stated, and Cannot State, a Claim of Purposeful Discrimination.

Plaintiffs also allege no facts that could establish that Illinois had a purpose

other than the one stated by the Legislature—“[p]reserving existing zero emission

energy generation” in order to achieve the State’s “environmental goals and ensur[e]

that air quality in Illinois continues to improve.” Ill. P.A. 099-0906 § 1.5(4). Indeed,

plaintiffs point only to a single statement they allege the Governor made when

signing the bill—a statement that the ZEC program would “protect[] taxpayers,

ratepayers, and the good paying jobs at the Clinton and Quad Cities plants.” Compl.

at ¶ 61 (emphasis omitted). This statement, even if proven, is wholly inadequate to

support a claim that the ZEC program only “purport[s] to promote environmental

purposes” but is, “in reality simple economic protectionism.” See Minnesota v.

Clover Leaf Creamery Co., 449 U.S. 456, 471 (1981).

In fact, courts have consistently rejected claims of pretextual discrimination

where the evidence of purported protectionism consists of “occasional references”

to a law’s economic effects, see Alliance of Auto. Mfrs. v. Gwadosky, 430 F.3d 30,

38 (1st Cir. 2005), or “a few quotes” pulled “from an expansive record,” Rocky

Mountain Farmers Union v. Corey, 730 F.3d 1070, 1100 n.13 (9th Cir. 2013). See

also Allstate Ins. Co. v. Abbott, 495 F.3d 151, 159 (5th Cir. 2007) (rejecting “stray

21

protectionist remarks of certain legislators” as sufficient to override other evidence

of “legitimate consumer protection concerns”); Valley Bank of Nev. v. Plus Sys., Inc.,

914 F.2d 1186, 1196 (9th Cir. 1990) (rejecting claim based on “statements plucked

out of the legislative history”).

The cases plaintiffs cite in which protectionist purposes were found are wholly

inapposite. In Bacchus, Hawaii’s Legislature had expressly indicated that its sole

intent was to “encourage and promote the establishment of a new [domestic]

industry.” Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 270 (1984). It was thus,

“undisputed that the purpose of the exemption was to aid [in-state] industry.” Id. at

271; see also Alliance for Clean Coal v. Miller, 44 F.3d 591, 596 (7th Cir. 1995)

(“The intended effect of these provisions is to foreclose the use of low-sulfur western

coal [from outside Illinois].”)

In contrast, the Legislature’s stated purpose here is to maintain and improve air

quality for the people of Illinois, and Plaintiffs allege no facts that suggest the

program does not serve that aim. The single alleged statement by the Governor “is

easily understood, in context, as economic defense of [a program] genuinely

proposed for environmental reasons.” Clover Leaf, 449 U.S. at 463 n.7. Plaintiffs’

discriminatory purpose claim fails.

22

3. Plaintiffs Have Not Stated, and Cannot State, a Claim of Discriminatory Effects.

Perhaps recognizing the constitutionality of the ZEC qualifications, plaintiffs

primarily complain about the effects they allege the ZEC program will have on

wholesale energy markets. See AOB at 63, 65, 67; see also Compl. at ¶¶ 13, 65, 67.

However, any such effects flow from non-discriminatory policy judgments about the

importance of preserving certain generation for its air quality benefits. Accordingly,

these effects are most appropriately analyzed under the Pike balancing test

applicable to the effects of non-discriminatory laws. Davis, 553 U.S. at 338-39; see

also, infra, Sec. III.

Even analyzed as a discriminatory effects claim, as Plaintiffs posit it, however,

this claim fails. The dormant Commerce Clause does not prohibit a State from

distinguishing between businesses, and even preferring certain businesses, based on

the relative risks and benefits that flow from the operations of those businesses. See,

infra, Section II.C. Further, courts have rarely found discrimination based solely on

a law’s effects and have consistently indicated that such claims carry heavy burdens

for plaintiffs. See, e.g., Int’l Franchise Ass’n v. Seattle, 803 F.3d 389, 405 (9th Cir.

2015); Cherry Hill Vineyard, LLC v. Baldacci, 505 F.3d 28, 36 (1st Cir. 2007); Black

Star Farms LLC v. Oliver, 600 F.3d 1225, 1232 (9th Cir. 2010); Gwadosky, 430 F.3d

at 39.

23

Government Suppliers Consolidating Services, Inc. v. Bayh, 975 F.2d 1267 (7th

Cir. 1992) is not to the contrary and does not support plaintiffs’ effects claim. In

that case, this Court observed that the challenged law’s ability to further the State’s

asserted public health objectives was “questionable at best” and concluded that “the

[law’s] principal objective” was, actually, “to impede importation” of the product at

issue. Id. at 1279-80. The Court then also looked to the law’s effects, concluding

that “the practical impact” would be to reduce that importation “very significantly.”

Id. at 1279 (7th Cir. 1992) (emphasis added). In contrast here, the principal objective

of the ZEC program is to maintain and improve air quality for Illinois residents, and

plaintiffs allege nothing that suggests the program will not do so. Further, plaintiffs

do not allege the program will reduce the import of electricity into Illinois at all, let

alone very significantly. Notably, the ZEC program only applies to 16 percent of

Illinois’ load. 20 ILCS 3855/1-75(d-5)(1).

This case is also wholly distinguishable from Hunt v. Washington State Apple

Advertising Commission, 432 U.S. 333 (1977), upon which this Court relied in

Government Suppliers. In Hunt, the challenged law had “the effect of stripping away

from [out-of-state industry] the competitive and economic advantages it ha[d] earned

24

for itself through its expensive inspection and grading system.”7 Id. at 351. Here,

in contrast, plaintiffs identify no such earned advantages that could be stripped away.

In fact, if the alleged effects actually come to pass, they will fall on many in-

state generators as they do on out-of-state generators. As plaintiffs themselves

allege, these alleged effects—depressed market prices and increased barriers to

entry—impact all market participants. See Compl. at ¶ 35 (alleging all market

participants receive the same clearing price), ¶ 46. The two nuclear plants plaintiffs

claim will receive ZECs—Quad Cities and Clinton—represent only about 12 percent

of Illinois’ total generating capacity. 8 Thus, the majority of Illinois’ in-state

generators—88 percent of the State’s generating capacity—will not receive ZECs

and will, thus, experience the same adverse market impacts experienced by all non-

qualifying generators regardless of their location. See Compl. at ¶ 62 (“The ZEC

program excludes all other zero-carbon resources in Illinois and elsewhere”); ¶ 13

(alleging that only “certain in-state wholesale producers” will benefit) (emphases

added). These facts bear no resemblance to those in Government Suppliers or Hunt

and cannot sustain a claim of discriminatory effects. Indeed, courts have rejected

7 Hunt, like Government Suppliers, may be best viewed as a case involving a discriminatory purpose producing discriminatory effects. See Bacchus, 468 U.S. at 270 (citing Hunt as a discriminatory purpose case); Chemical Waste Mgmt., Inc. v. Hunt, 504 U.S. 334, 344 n.6 (1992) (same). 8 See U.S. Energy Information Administration, “Nuclear plants account for more than half of electricity generation in Illinois,” available at https://www.eia.gov/todayinenergy/detail.php?id=31092, last visited October 5, 2017.

25

such claims where the law could be “viewed as harming one type of in-state entity

… while benefitting another type of in-state entity.” Int’l Franchise Ass’n, Inc., 803

F.3d at 406.

The district court correctly concluded that plaintiffs have failed to state a claim

of discrimination in any form.

C. Plaintiffs’ Discrimination Claims Are Premised on an Overbroad Reading of the Dormant Commerce Clause that Contravenes Controlling Precedent.

Plaintiffs’ discrimination claims also fail for the simple reason that their

foundational premise is faulty. Contrary to Plaintiffs’ assumption, regulatory

programs adopted to advance legitimate state interests, including public health and

environmental protection, do not violate the dormant Commerce Clause just because

they might make market participation easier for some and harder for others.

The Supreme Court’s decision in Exxon Corp. v. Maryland, 437 U.S. 117

(1978), illustrates the point. There, Maryland had decided to protect its consumers

from abusive pricing and distribution practices of oil refiners by prohibiting refiners

from operating retail gasoline stations. Id. at 121. There was no dispute that

Maryland’s policy preference for independent retailers would affect the retail

gasoline market. Exxon itself operated 36 retail stations in Maryland before the

prohibition was enacted and could operate none afterwards. Id. at 121. It was

likewise clear that the burden of Maryland’s policy preference would fall exclusively

26

on out-of-state interests because all refiners happened to be located outside of

Maryland. Id. at 121, 125. Yet, the Court rejected Exxon’s “underlying notion” that

such preferences are unconstitutionally discriminatory, holding expressly that the

Commerce Clause does not “protect[] the particular structure or methods of

operation in a retail market.” Id. at 127.

Other courts have likewise upheld distinctions States have drawn between

businesses based on the relative risks or benefits presented by different types of

operations, rejecting an “expansive interpretation of discrimination” that would

include “all instances in which a law, in effect, burdens some out-of-state interest

while benefitting some in-state interest.” See Ford Motor Co. v. Texas Dep’t of

Transp., 264 F.3d 493, 500 (5th Cir. 2001); see also Allstate, 495 F.3d at 161; Brown

v. Hovatter, 561 F.3d 357, 364 (4th Cir. 2009); Valley Bank, 914 F.2d at 1193.

Notably, many, if not all, of the laws upheld in these cases had greater impacts

than plaintiffs allege here. Many of these laws expressly prohibited entire classes of

businesses from any market participation. The ZEC program, in contrast, prohibits

nothing and covers only 16 percent of Illinois’ electricity load, meaning the vast

majority of Illinois’ load will be served by energy that receives no ZEC support. 20

ILCS 3855/1-75(d-5)(1). 9 Given that States may, consistent with the dormant

9 This fact, among others, distinguishes this case from C & A Carbone, Inc. v. Town of Clarkstown, N.Y., 511 U.S. 383 (1994) on which plaintiffs rely. AOB at 64, 70. The ordinance at issue in

27

Commerce Clause, adopt broader measures—including prohibitions—that

differentiate among businesses based on the risks and benefits of their operations,

there is no reason to conclude that the substantially lesser burdens alleged here run

afoul of the Constitution.

Further, the authority to distinguish between businesses in ways that protect

consumers and residents does not disappear when some portion of the resulting

burdens or benefits happens to align with the in-state or out-of-state locations of the

businesses. In Exxon, “the burden of divestiture requirements” fell “solely” on the

refiners who happened to be outside Maryland, but this fact did “not lead, either

logically or as a practical matter, to a conclusion that the State [was] discriminating.”

Exxon, 437 U.S. at 125. Similarly, in Clover Leaf Creamery, the Supreme Court

rejected both discrimination and undue burden challenges to Minnesota’s

prohibition against nonreturnable plastic milk containers, “[e]ven granting that the

out-of-state plastics industry is burdened relatively more heavily than the Minnesota

pulpwood industry.” See 449 U.S. at 472-73.

Likewise, here, even if only in-state generators ultimately qualify for ZECs,

that would not transform Illinois’ facially neutral ZEC qualifications into

Carbone created a monopoly for one local business. Id. at 391 (“it allows only the favored operator to process waste that is within the limits of the town”). Illinois’ ZEC program does nothing of the kind. Plaintiffs do not even allege that the ZEC program “leav[es] no room for investment from outside.” See Carbone, 511 U.S. at 392.

28

discrimination.10 As in Exxon and Clover Leaf, this is not a case where the line

between who benefits and who does not aligns with location. In fact, as discussed

above, most in-state generators are in essentially the same position as the allegedly

discriminated-against out-of-state generators. See, supra at p. 24. “The existence

of major in-state interests adversely affected” underscores that that the ZEC program

is not protectionist. See Clover Leaf, 449 U.S. at 473 n.17; see also Rocky Mountain

Farmers Union, 730 F.3d at 1099; Davis, 553 U.S. 337-38 (defining economic

protectionism as “regulatory measures designed to benefit in-state economic

interests by burdening out-of-state competitors”) (internal quotation omitted,

emphasis added).

Where, as here, the State expresses a preference based on public health and

environmental impacts, not on location, there is no prohibited protectionism. See

also Carbone, 511 U.S. at 390 (“We have interpreted the Commerce Clause to

invalidate local laws that impose commercial barriers or discriminate against an

article of commerce by reason of its origin or destination out of State.”) (emphasis

added); Wyoming, 502 U.S. at 455 (finding protectionism where differential

treatment was “based solely on [product’s] origin”) (emphasis added); Fort Gratiot

10 The fact that Exxon and Clover Leaf involved claims of geographically unbalanced burdens, as opposed to benefits, does not matter. “The determination of constitutionality does not depend upon whether one focuses upon the benefited or the burdened party. A discrimination claim, by its nature, requires a comparison of the two classifications….” Bacchus, 468 U.S. at 273; see also Allstate Ins. Co., 495 F.3d 156 (rejecting discrimination claim where benefits were allegedly designed “to maintain the dominance of local Texas body shops”).

29

Sanitary Landfill, Inc. v. Michigan Dept. of Natural Resources, 504 U.S. 353, 361

(1992) (invalidating distinctions based on “no reason, apart from its origin”). Just

as “[t]he dormant Commerce Clause is no obstacle” to regulation that seeks “to

prevent firms with superior market position … from entering” a particular market

“upon the belief that such entry would be harmful to consumers,” the Clause likewise

is no obstacle to Illinois supporting the continued availability of nuclear power upon

the belief that such generation prevents air pollution harmful to Illinois residents.

See Allstate Ins., 495 F.3d at 162.

Plaintiffs cannot state a discrimination claim here, and the district court’s

judgment should be affirmed.

III. PLAINTIFFS ALSO FAIL TO STATE A CLAIM UNDER THE PIKE BALANCING TEST.

As noted above, the effects about which plaintiffs complain result from non-

discriminatory distinctions based on risks to public health and the environment.

Under the “protocol for dormant Commerce Clause analysis,” such effects are

analyzed under the Pike balancing test. See Davis, 553 U.S. at 338-339. This Pike

claim also fails.

State laws usually survive the Pike balancing test because courts recognize that

state actions designed to protect their citizens can and do permissibly impact markets

and commerce. See id. at 339. Plaintiffs, thus, must allege an unusual or substantial

burden—not just a modest, speculative loss in opportunities or profits—to state a

30

viable Pike claim. See Clover Leaf, 449 U.S. at 472 (rejecting Pike claim in light of

“relatively minor” burden); Nat’l Ass’n of Optometrists & Opticians v. Harris, 682

F.3d 1144, 1150 (9th Cir. 2012) (requiring “significant burden”); Pacific Northwest

Venison Producers v. Smitch, 20 F.3d 1008, 1015 (9th Cir. 1994). Plaintiffs’

allegations cannot establish the necessary substantial burdens. See Clover Leaf, 449

U.S. at 473 (rejecting a Pike challenge despite the fact that challenged law would

change the market, possibly in ways that might favor the State’s pulpwood industry).

This conclusion is further bolstered by the fact that the putative benefits—

maintenance and improvement of Illinois’ air quality—are well-recognized as

outweighing some burden on interstate commerce. See, e.g., id. at 473 (recognizing

“substantial state interest” in natural resource protection); United Haulers Assn., Inc.

v. Oneida-Herkimer Solid Waste Management Authority, 550 U.S. 330, 347 (2007)

(recognizing “health and environmental benefits” as substantial enough to outweigh

“arguable burden”). In the absence of adequate allegations, it is appropriate to

dismiss Pike claims on the pleadings. See, e.g., Park Pet Shop, Inc. v. City of

Chicago, 872 F.3d 495, 501-502 (7th Cir. 2017); Chinatown Neighborhood Ass’n v.

Harris, 794 F.3d 1136, 1147 (9th Cir. 2015); Alliance of Auto. Mfrs., Inc. v. Currey,

610 Fed.Appx. 10, 13 (2d Cir. 2015); Fednav, Ltd. v. Chester, 547 F.3d 607, 624

(6th Cir. 2008); PTI, Inc. v Philip Morris Inc., 100 F. Supp. 2d 1179, 1201 (C.D. Ca.

31

2000); Goldfarb v. Supreme Court of Virginia, 766 F.2d 859, 863 (4th Cir. 1985).

The district court properly dismissed this claim.

CONCLUSION

For these reasons, the Amici States respectfully request that the district court’s

decision be affirmed.

Respectfully submitted, AMICI STATES OF California, Connecticut, Massachusetts, New York, Oregon, Vermont, and Washington XAVIER BECERRA Attorney General of California KATHLEEN A. KENEALY Chief Assistant Attorney General ROBERT W. BYRNE SALLY MAGNANI Senior Assistant Attorneys General GAVIN G. MCCABE Supervising Deputy Attorney General /s/_________________________ Elaine Meckenstock Melinda Piling Myung Park Dennis Beck Deputy Attorneys General Department of Justice 1515 Clay Street, 20th Floor Oakland, CA 94612-1492 Tel. (510) 879-0299 Elaine.Meckenstock@doj.ca.gov Attorneys for the State of California by and through Xavier Becerra, Attorney General, and the California Air Resources Board

GEORGE JEPSEN Attorney General of Connecticut CLARE E. KINDALL Department Head – Energy /s/______________________ Clare E. Kindall Seth A. Hollander Assistant Attorneys General Ten Franklin Square New Britain, CT 06051 Tel. (860) 827-2683 Clare.Kindall@ct.gov Attorneys for the State of Connecticut by and through George Jepsen, Attorney General

32

MAURA HEALEY Attorney General Commonwealth of Massachusetts One Ashburton Place Boston, MA 02108

ERIC T. SCHNEIDERMAN Attorney General of New York 120 Broadway, 25th Floor New York, NY 10271

ELLEN F. ROSENBLUM Attorney General of Oregon 1162 Court Street N.E. Salem, OR 97301

ROBERT W. FERGUSON Attorney General of Washington P.O. Box 40100 1125 Washington Street SE Olympia, Washington 98504

THOMAS J. DONOVAN, JR. Attorney General of Vermont 109 State Street Montpelier, VT 05609-1001

33

CERTIFICATION OF COMPLIANCE WITH RULE 32(A)(7)

I hereby certify that this brief complies with the type-volume limitations of

Circuit Rule 32(a)(7)(B) in that this brief contains 6,988 words, excluding the parts

of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii),as determined by Microsoft

Word. This Brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because it has

been prepared in a proportionally spaced face in 14-point Times New Roman font

(with footnotes in 12-point).

/s/_______________________ M. Elaine Meckenstock Deputy Attorney General

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CERTIFICATION OF SERVICE

I hereby certify that on this 3rd day of November 2017, I caused the foregoing

to be filed electronically with the Clerk of the Court using the CM/ECF System,

which will send a Notice of Electronic Filing to all counsel of Record.

/s/_________________________ M. Elaine Meckenstock Deputy Attorney General